Beacon Roofing Supply, Inc.

Good afternoon ladies and gentlemen and welcome to the Beacon second quarter 2023 earnings call. My name is Sam and I'll be your coordinator for today. At this time all participants are in listen only mode. We'll be conducting a question and answer session towards the end of this call. At that time I'll give you instructions on how to ask a question. If at any time during the call you require assistance please press star followed by zero and our coordinator will be happy to assist you. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Mr. Benit Sanghvi, Vice President, Capital Markets and Treasurer. Please proceed, Mr. Sanghvi.

Thank you, Sam. Good afternoon, everybody, and thank you for taking the time to join us on our call today. Julian Francis, Beacon's Chief Executive Officer, and Frank Linegro, our Chief Financial Officer, will begin with prepared remarks that will follow the slide deck posted to the Investor Relations section of Beacon's website. After that, we will open the call for questions. Before we begin, please reference slide two for a couple of brief reminders. First, this call will contain forward-looking statements about the company's plans and objectives and future performance. Forward-looking statements can be identified because they do not relate strictly to historical or current facts and use the words such as anticipate, estimate, expect, believe, and other words of similar meaning. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including but not limited to, those set forth in the risk factor section of the company's 2022 Form 10-K. Second, the forward-looking statements contained in this call are based on information as of today, August 3, 2023, and except as required by law, the company undertakes no obligation to update or revise any of these forward-looking statements. And finally, this call will contain references to certain non-GAAP measures. The reconciliation of these non-GAAP measures to the most comparable gap measures is set forth in today's press release and the appendix to the presentation accompanying this call. Both the press release and the presentation are available on our website at DECN.com. Now, let's begin with opening remarks from Julian.

Thanks, Bennett. Good afternoon, everyone. I'm pleased to say that we delivered another good quarter with strong execution on key initiatives and disciplined cost management. Before I begin our review of the quarter, let me remind you of the assumptions that underpinned our prior outlook. We said that the overall residential market would be down mid to high single digits with new down double digits and replacement activity down mid single on lower existing home sales. We said storm demand would be a tailwind on a return to the 10-year average, significantly above prior year. And we expected the non-residential end market would be about flat, but volumes would be affected in the first half by contractor destocking. And we expected price stability. In the first half of the year, end market demand has largely performed as we outlined, with the residential market slightly exceeding our expectations on stronger than expected storm demand. And while we believe the non-residential end market is broadly flat, excess contractor inventory was significantly higher than anticipated, which created first half headwinds that we believe are now largely but not completely behind us. Against this backdrop, we continued to focus on the areas within our control, and our team's strong execution on our ambition 2025 initiatives resulted in record second quarter net sales. Average selling prices were up low single digits year over year, and combined with contributions from greenfields and acquisitions, drove net sales more than 6% higher year over year. We once again delivered double-digit adjusted EBITDA margins in the second quarter through a combination of disciplined market execution and productivity gains, and we generated substantial cash flow in the quarter. Having the right products in the right place in the right quantity to meet customer needs is a core competence. At the same time, balancing inventory to local demand conditions is critical to ensure we manage working capital and create value for our shareholders. As we saw market conditions change in the middle of last year, we began to proactively and methodically reduce inventory, unlocking substantial cash flow. We converted operating cash flow at over 100% of adjusted EBITDA in the trailing 12 months ended June 30th. demonstrating the resiliency of our business model in changing market conditions. We used that cash flow to create balance sheet capacity to reinvest in the business, conduct M&A, and return capital to shareholders, which I will discuss in more detail on the following slide. As I said at the outset, I'm pleased with the team's execution in what turned out to be a pivotal few months for the company. Now please turn to page five of the DAC. As you are aware, 18 months ago we laid out our medium-range targets to drive above-market growth, deliver double-digit adjusted EBITDA margins, build a great organization, and generate superior shareholder returns. We can only do this if we deliver a great value proposition to our customers, and our teams are doing that every day. So let me provide you with an update on our strategic initiatives, which will give you a better idea of how we are accomplishing these goals. And let me start by highlighting how we are building a winning culture. In May, we released our second annual Corporate Social Responsibility Report, consistent with our values and our commitment to transparency and continuous improvement. We reported early progress on our goal to reduce Scope 1 and Scope 2 GHG emissions intensity 50% by 2030 relative to our base year of 2020. We are focusing on our fleet and facilities to improve fuel efficiency and reduce energy consumption. And I'm pleased to share that we reduced our emissions intensity by 5.7% in 2022 relative to the 2020 base. We also announced an employee stock purchase program so that employees can be further invested in the success of the company they work for every day. This benefit allows team members to buy our shares at a discount and is available to all employees including drivers, branch personnel, sales and functional roles. We are aligning the entire company to our mission and to creating shareholder value. In fact, more than 20% of our employees including more than 10% of our frontline workforce enrolled in the inaugural period and are taking advantage of this opportunity. I'm particularly pleased that hundreds of our drivers, warehouse team, and inside sales organization are participating, a real commitment to our company and to their teammates. Next, we are driving growth above market and enhancing margins through a set of targeted initiatives. Our digital capability continues to be a clear competitive differentiator for Beacon, and sales through our online platform deliver approximately 150 basis points better margin compared to offline channels. We provide the most complete digital offering in the industry and continue to expand our capabilities to serve customers in the way that brings them the most value. Our most recent digital integration with Acculinks, a leading provider of all-in-one business management software for roofing contractors, drove an impressive 28% year-over-year increase in digital sales in the second quarter and the highest percentage of residential sales ever at 21%. We intend to build upon our leadership by continuing to invest in this capability. Last quarter, we highlighted the rollout of our customer experience, or as we call it, our CX initiative. Engaging with our customers during their most important moments and leveraging our strategic advantages to solve their most pressing needs is one of the pillars of our competitive differentiation. We continued to roll out these best practices to six new markets in the second quarter. I'm happy to report that one of our key metrics of customer satisfaction, average on-time delivery percentage, is showing a meaningful increase in CX markets, sustainably improving our reliability relative to our past and to our competitors. We are also seeing tangible improvements in other key metrics including sales growth and customer wallet share. Customers have told us they are willing to reward a better service experience and we are building our capabilities leveraging our competitive advantages of scale and our network model. Expanding our customer reach is also a major lever in our growth plans, which include investments in greenfields and acquisitions. Our dedicated greenfield team is executing on a robust pipeline. We added 14 greenfields through the second quarter, improving efficiency and further enhancing customer service. For reference, We have now opened 31 new branches since the beginning of last year, well on pace to exceed our Ambition 2025 goal. On acquisitions, we completed the purchase of Silver State building materials during the second quarter, providing access to the market in Reno and Lake Tahoe. In total, we have acquired nine companies, adding 30 branches since announcing our Ambition 2025 plan, expanding our opportunity in markets across the country. Now, those of you who've listened to our calls know that we have discussed our efforts to drive operational excellence through our continuous improvement initiatives. Our OTC network leverages the density of our branch network in larger MSAs. Currently, we operate in 57 markets with nearly 280 branches participating, where our teams work together to deliver on our service model to address our customers' needs. Key to achieving these improvements is our routing software, BeaconTracked. enhancing the speed and reliability of our network, and providing delivery tracking capabilities for our customers. In addition, we leverage logistic capabilities across our network of branches to reduce delivery time and mileage, improve labor productivity, and reduce fleet costs and emissions. We continue to execute on the strategic branch optimization initiative that we highlighted at our investor day and are developing a comprehensive standard methodology we utilize value stream mapping for truck and order flows, leading to optimized processes and branch layout, which increases productivity and reduces wait times. The benefits are tangible, improving throughput, capacity, and sales per hour worked. And finally, I will talk about how we are creating shareholder value and give you some details on the transaction completed last week to repurchase the entirety of the outstanding preferred shares owned by CD&R. We knew that the opportunity would eventually present itself and have been preparing for it by restoring our balance sheet flexibility and maintaining strong liquidity. We recently saw the opportunity to reach out to our largest shareholder and were able to reach an agreement in early July to redeem the shares for just over $800 million, retiring the equivalent of 9.7 million common shares. In addition, we continue to execute on our current authorization to repurchase our common stock. Year to date through July 31st, we repurchased approximately $100 million or approximately 1.5 million shares. Many of you will recall that we first announced our share repurchase program in February of 2021 as part of our ambition 2025 plan. I'm very pleased to report that we have since deployed $1.3 billion to repurchase approximately 21% of the shares on an as-converted basis while maintaining net debt leverage within our stated target range. As a result of this significant return of capital, we have announced that we do not expect additional repurchases during the rest of the year under the remaining authorization. We remain confident that we have multiple paths to growth and margin expansion through the cycle. We have a differentiated approach and have built the tools needed to achieve our ambition 2025 targets. Now I'll pass the call over to Frank to provide a deeper focus on our second quarter results.